The Iraqi government is clamping down on the "illegal smuggling" of crude, bitumen and other oil products to Iran.
Iraq's foreign affairs ministry has asked Iranian authorities to stop trucks carrying "oil, black oil and other petroleum products" from entering Iran through border crossing areas in Iraq's semi-autonomous Kurdistan region unless the exports are licensed by state-owned Somo, according to a 12 November letter seen by Argus.
The movement of bitumen and other oil products across the Haj Omran-Piranshahr border point have already halted because of the new directive, market sources said.
"The Parwiz Khan and Bashmakh borders are still exporting bitumen, but if this letter is implemented fully, Iraq's bitumen exports will be disrupted since none of these producers possess a Somo licence," an Iraqi bitumen market participant told Argus.
The restrictions are expected to remain in place until further notice, although some market participants expressed doubt about how effective the crackdown will be.
The directive will also have a bearing on crude producers in Iraq's Kurdistan region, which have been relying on local sales since a key export pipeline to Turkey was shut last year. Foreign operators operating in Kurdistan said they have been trucking crude to local refineries since the closure, but Argus understands that Kurdish crude is also being smuggled — by truck — across the border to Turkey, Iran and Syria.
Iraq's oil ministry said this month that it has secured a commitment from the Kurdistan Regional Government (KRG) to scale back its crude production to "agreed levels" to help bring overall Iraqi output back below its Opec+ production target.
Tight supply
Participants in Iraq's bitumen market note that the smuggling directive coincides with already tight domestic supply, caused by limited availability of vacuum residue feedstock. Not only are higher margins encouraging Iraqi refineries to blend vacuum residue to produce high-sulphur fuel oil (HSFO), but a prolonged roadblock between Erbil and Sulaymaniyah, which started before the Kurdish election in October, has made it difficult for bitumen producers to transport vacuum residue from refineries to their production units, market participants said.
Manifest charges were decreased to $10/t last week to encourage bitumen producers to transport vacuum residue, down from $35/t when the roadblock started. But most Kurdish suppliers have refrained from offering fresh cargoes for export in the past three weeks. A few Indian importers told Argus that it has become increasingly difficult to secure Iraqi bitumen drums because of a lack of offers. Some bitumen suppliers took to the sidelines in the expectation that export values will increase in line with rising Iranian seaborne prices.
The limited availability of vacuum residue has boosted production costs for Iraqi bitumen suppliers. Iraqi drums will be offered higher than $340/t fob Bandar Abbas in the coming days, compared with around $322-325/t last week, producers said. One major southern Iraq-based producer has not been offering drummed cargoes since the end of October as the higher production costs have made export prices less competitive for major consumers like India, market participants said.
